MANAGEMENT ADVISORY SERVICES REVIEW MATERIALS, Exercises of Managerial Economics

Download MANAGEMENT ADVISORY SERVICES REVIEW MATERIALS and more Exercises Managerial Economics in PDF only on Docsity! MAS CUP EASY ROUND 1. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting? a. Long term debt b. Common stock c. Accounts payable and accruals d. Preferred Stock (PH CPA Review Chapter 9 no. 1) 2. An entity provided the following trial balance on June 30, 2015: Cash overdraft ( 200,000) Property, plant and equipment, net 1,900,000 Accounts receivable, net 700,000 Accounts payable and accrued expenses 640,000 Inventory 1,200,000 Share capital 3,000,000 Prepaid expenses 200,000 Share premium 500,000 Land held for resale 2,000,000 Retained earnings 1,660,000 Checks amounting to P600,000 were written to vendors and recorded on June 30 resulting in cash overdraft of P200,000. The checks were mailed on July 9. Land held for resale was sold for cash on July 15. The financial statements were issued on July 31. On June 30, 2015, what total amount should be reported as current assets? a. 4 500 000 b. 4 100 000 c. 4 300 000 d. 2 500 000 (GDRIVE Elims Easy MAS no. 1) 3. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person a. True b. False (Academia Financial Management Reviewers Chapter 1 no. 3) 4. Which of the following statements is most correct? a. If a company’s tax rate increases but the yield to maturity of its noncallable bonds remains the same, the company’s marginal cost of debt capital used to calculate its weighted average cost of capital will fall b. All else equal, an increase in a company’s stock price will increase the marginal cost of retained earnings c. All else equal, an increase in a company’s stock price will increase the marginal cost of issuing new common equity, . d. Statements a and b are correct. (PH CPA Review Chapter 9 no. 3) 5. Blaster Company’s unadjusted trial balance at December 31, 2026, included the following accounts: Debit Credit Accounts receivable P1,000,000 Allowance for doubtful accounts 40,000 Sales P15,000,000 Sales returns and allowances 700,000 Blaster Company estimates its bad debt expense to be 1 1/2% of net sales. Determine its bad debt expense for 2026. a. 225 000 b. 254 500 c. 214 500 d. 55 000 (GDRIVE ELIMS MAS EASY no. 8) 6. You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows? a. The discount rate decreases. b. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same. c. The discount rate increases. d. Statements b and c are correct. (PH CPA REVIEWER Chapter 6 no. 1) Direct materials P39 Direct labor 6 Variable overhead 8 Fixed overhead 9 Selling expenses Variable 30 Fixed 11 The company desires to seek an order for 5,000 units from a foreign customer. The variable selling expenses will be reduced by 40%, but the fixed costs for obtaining the order will be P20,000. Domestic sales will not be affected by the order. The minimum break-even price per unit to be considered on this special sale is a. 71 b. 75 c. 69 d. 84 (ACADEMIA MAS Reviewer no. 96) 15. You recently purchased a 20-year investment tha pays you P100 at t = 1, P500 at t = 2, P750 at t = 3, and some fixed cash flow, X, at the end of each of the remaining 17 years. You purchased the investment for P5,544.87. Alternative investments of equal risk have a required returnof 9 percent. What is the annual cash flow received at the end of each of the final 17 years, that is, what is X? a. 600 b. 625 c. 650 d. 675 (PH CPA Reviewer Chapter 6 no. 76) 16. Jones Company’s new truck has a cost of $20,000, and it will produce end-of-year net cash inflows of P7,000 per year for 5 years. The cost of capital for an average-risk project like the truck is 8 percent. What is the sum of the project’s IRR and its MIRR? a. 15.48% b. 18.75% c. 26.11% d. 37.59% (PH CPA Reviewer Chapter 10 no. 86) 17. In applying the CAPM to estimate the cost of equity capital, which of the following elements is not subject to dispute or controversy? a. The expected rate of return on the market, kM. b. The stock’s beta coefficient, bi. c. The risk-free rate, kRF. d. All of the above are subject to dispute. (PH CPA Reviewer Chapter 9 no. 24) 18. You deposited P1,000 in a savings account that pays 8 percent interest, compounded quarterly, planning to use it to finish your last year in college. Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue in school, so you close out your account. How much money will you receive? a. 1 171 b. 1 126 c. 1 082 d. 1 163 (PH CPA Reviewer Chapter 6 no. 16) 19. You are considering an investment in a 40-year security. The security will pay P25 a year at the end of each of the first three years. The security will then pay $30 a year at the end of each of the next 20 years. The nominal interest rate is assumed to be 8 percent, and the current price (present value) of the security is P360.39. Given this information, what is the equal annual payment to be received from Year 24 through Year 40 (for 17 years)? a. 35 b. 38 c. 40 d. 45 (PH CPA Reviewer Chapter 6 no. 105) 20. Which of the following statements is most correct? a. The NPV method assumes that cash flows will be reinvested at the cost of capital, while the IRR method assumes reinvestment at the IRR. b. The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR. c. The NPV method assumes that cash flows will be reinvested at the cost of capital, while the IRR method assumes reinvestment at the risk-free rate. d. The NPV method does not consider the inflation premium. (PH CPA Reviewer Chapter 10 no. 2) DIFFICULT ROUND 21. Taylor company paid out one-half of its 2002 earnings in dividends. Taylor’s earnings increased by 20%, and the amount of its dividends increased by 15% in 2003. Taylor’s dividend payout ratio for 2003 was a. 75% b. 52.3% c. 47.9% d. 41.7% (ACADEMIA MAS Reviewer no. 133) 22. If a retailer’s term of trade are 3/10, net 45 with supplier, what is the cost on an annual basis of not taking the discount? Assume a 360-day year. a. 24% b. 37.11% c. 24.74% d. 31.81% (ACADEMIA MAS Reviewer no. 155) 23. Selected data from Maui Company’s year-end financial statements are presented below. The difference between average and ending inventory is immaterial. Current ratio 2.0 Quick ratio 1.5 Current liabilities P120,000 Inventory turnover (based on cost of sales) 8 times Gross profit margin 40% Maui’s net sales for the year were a. 800 000 b. 480 000 c. 672 000 d. 1 200 000 24. After getting her degree in marketing and working for 5 years for a large department store, Sally started her own specialty shop in a regional mall. Sally’s current lease calls for payments of P1,000 at the end of each month for the next 60 months. Now the landlord offers Sally a new 5-year lease that calls for zero rent for 6 months, then rental payments of P1,050 at the end of each month for the next 54 months. Sally’s cost of capital is 11 percent. By what absolute dollar amount would accepting the new lease change Sally’s theoretical net worth? a. 2 810.09